Coffee prepares for index fund adjustments, possible Roya outbreak

General Comments: Futures were higher as traders prepared for the index fund adjustments that start tomorrow. The funds most likely need to buy more Coffee contracts to match the indexes, and this idea created speculative buying yesterday. The close was positive and implied that futures can move higher this week. Charts still show that New York and Sao Paulo are in a trading range, with both possibly trying to complete a bottom. London futures are in a short term up trend, with traders there talking about tight supplies available to the market. Brazil still has most of its production to sell and is getting some competing offers in the short term from Central America and Colombia. Current crop development is good this year in Brazil as moderate temperatures have been reported, but production areas could use more rain for the developing crop. Central America crops are getting harvested, and conditions are called good there. There are widespread reports of rust on the trees and leaves, and Roya has become a big issue as well. It is possible that many Central America and Mexico producers will harvest much less Coffee next year if they are affected by this disease, and many seem to be affected. We are already hearing significant loss estimates for the next crop due to Roya. Colombia is reported to have good conditions.

Overnight News: Certified stocks are a little lower today and are about 2.585 million bags. The ICO composite price is now 133.18 ct/lb. Brazil should get scattered showers over the second half of the week. Temperatures will average near to above normal. Colombia should get scattered showers, and Central America and Mexico should get mostly dry conditions, but a few showers are possible in southern Mexico and northern Central America. Temperatures should average near to above normal. Peru hopes to produce 7.5 million quintals of Coffee in 2013, from 6.2 million in 2012.

Chart Trends: Trends in New York are mixed. Support is at 146.00, 143.00, and 141.00 March, and resistance is at 152.00, 155.00, and 157.00 March. Trends in London are up with objectives of 2100 and 2290 March. Support is at 1940, 1915, and 1900 March, and resistance is at 1975, 1985, and 2000 March. Trends in Sao Paulo are mixed. Support is at 182.00, 179.00, and 178.00 March, and resistance is at 188.00, 190.00, and 193.50 March.

COTTON

General Comments:Futures were a little higher as traders get ready for the USDA January reports that will be released on Friday morning, Chicago time. A weaker U.S. dollar helped demand ideas and prices as well. Some are wondering if planted area might be lower next year here in the U.S. due to weak prices against competing crops. The area lost would go mostly to Corn and Soybeans. Current weather features some precipitation in Delta and Southeast areas, but western Texas was mostly dry. Trends are not well defined on the charts, but ideas are that the market can continue to work higher overall.

Overnight News: The Delta and Southeast will be dry today and tomorrow, and then will see rain move from west to east the balance of the week. Temperatures will average above normal. Texas will get dry weather except for some rain on Wednesday. Temperatures will average above normal. The USDA spot price is now 71.40 ct/lb. ICE said that certified Cotton stocks are now 0.094 million bales, from 0.094 million yesterday.

Chart Trends: Trends in Cotton are mixed. Support is at 74.60, 74.40, and 73.70 March, with resistance of 76.40, 76.95, and 77.05 March.

About the Author

Jack Scovilleis a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988. Jack writes daily commentaries - Morning Grains and Softs, in both English and Spanish and is regularly quoted around the world by news & wire services including Dow Jones, AP, Bloomberg, and Reuters. You can contact Jack by phone at (312) 264-4322 or by email at jscoville@pricegroup.com. Learn even more on our website at www.pricegroup.com.

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.